By Dow Jones Business News,
February 25, 2014, 05:29:00 PM EDT
By Justin Baer and Jean Eaglesham
Morgan Stanley has struck a preliminary agreement to pay $275 million to settle a top securities regulator's
allegations that the bank misled investors in mortgage bonds that collapsed during the financial crisis.
The expected pact, announced by the bank in a regulatory filing Tuesday, would mark the first enforcement case the
Securities and Exchange Commission has brought against Morgan Stanley for its actions during the financial crisis. It
still needs to be approved by the SEC's commissioners, the firm said in its annual report filed with regulators.
The deal in principle, reached on Jan. 30, would resolve allegations related to the firm's sale of certain
residential mortgage-backed securities in 2007. Under the agreement, Morgan Stanley wouldn't admit or deny the SEC's
findings. The timing of the SEC's final decision on the settlement isn't certain.
Overall, Morgan Stanley said in the filing that it racked up $1.95 billion in litigation expenses last year, which
includes the SEC case as well as a recently announced agreement to settle a $1.25 billion dispute with the U.S. Federal
Housing Finance Agency. The legal costs nearly quadrupled from the $513 million in 2012, and were up even more sharply
from the $151 million in 2011.
A long-running investigation into Morgan Stanley's sale of a more complex type of mortgage deal, called a
collateralized debt obligation, hasn't to date resulted in any enforcement action with the SEC.
Regulators have sued many of Morgan Stanley's peers, including Goldman Sachs Group Inc., Bank of America Corp.,
Credit Suisse Group AG and J.P. Morgan Chase & Co. for a wide variety of issues tied to their handling of mortgage-
related securities or CDOs.
The SEC so far has brought crisis-related actions against 169 firms and individuals, winning penalties of more than
$3 billion, according to its website.
Many of the banks sued by the SEC over their mortgage-linked deals have settled. Goldman agreed to pay $550 million
in 2010. In late 2012, J.P. Morgan and Credit Suisse settled for $269.9 million and $120 million, respectively. None of
the firms admitted or denied wrongdoing related to the SEC's complaints.
Write to Justin Baer at email@example.com and Jean Eaglesham at firstname.lastname@example.org
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